We all know our credit score is important, but few actually understand why it is such a big deal. Nearly every adult’s financial life is heavily reliant on credit, making the health of your credit report extremely important. An understanding of how and why your credit score affects your financial life in noteworthy ways will give you increased motivation to improve and maintain your credit rating.
Big Purchases
The first reason your credit rating is important is that it affects your ability to finance the big purchases you will inevitably want to make. Home and car consumer loans are approved based on two factors, your credit rating and your provable income. Credit ratings tell lenders how much of a risk they are taking by extending financing to you. A poor credit rating will mean your interest rates will be higher and loan terms shorter, which add up to more expensive monthly payments. If your income level doesn't support those expensive payments, your loan applications may be rejected and you won’t be able to finance that new car or condo you want to purchase.
Getting Hired
A lot of people have no idea how their credit rating comes into play while trying to get hired on in a number of industries. Employers that run detailed credit checks on applicants use the results as a gauge of how responsible you are with your own finances and in general. A poor credit rating may give prospective employers the impression that you aren’t responsible enough to take on the job you want to get, especially if that job involves any kind of finance based skills. On the other hand, a strong credit score paints a picture for employers of someone who is responsible and reliable.
Leasing Your Home
Your credit rating will be checked before you are able to sign a lease for an apartment or house. As with financing and employment, your credit score tells potential landlords whether or not you are likely to make your monthly rent payments on time, or at all. Bad credit can lead to higher rent and security deposits, as well as the need to find a cosigner for the lease. Evictions remain on your credit report for seven years, and can immediately disqualify you from some home rentals even if you have paid the fees and have no outstanding debt from that eviction.
Your credit score is the first thing a lot of financing companies, landlords, and potential employers will look at while deciding whether or not to work with you. Given how important your credit rating is, and how many areas of your life can be affected by a bad score, it is in your best interest to know what is contained in the report, and how you can either improve or maintain your credit standing.
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